Supreme Court quashes Aereo but leaves room for innovation

When is a cable company not a cable company? Or, rather, when is an over-the-air, Internet-connected provider of television content actually a cable company?

These were some of the questions the Supreme Court faced as it decided the case American Broadcasting Companies v. Aereo, Inc. The case revolved around a company that, according to Chief Justice John Roberts is “based solely on circumventing legal prohibitions that you don’t want to comply with.” It’s no wonder the Court decided, by a 6-3 margin, that Aereo’s business model violated copyright law.

It would appear that many, including the major television networks, agree with Roberts’ assessment that the Aereo technology, which allows subscribers to view over-the-air TV streams through their devices, was using a bit of legerdemain to skirt existing copyright law. As Andrew Goldstein, partner at Freeborn puts it, Aereo’s technology is a “Rube Goldberg-like device. You can look at it and say it’s not optimal, practical or efficient. They are exploiting a loophole.”

He saw Aereo’s behavior as close to piracy, and was not at all surprised that the court ruled against the company. The SCOTUS analyzed what Aereo did and found that, “if it walks like a cable station and smells like one, it is a cable station,” as Goldstein put it.

Now, Aereo, of course, has stated that it was not trying to circumvent the law, but rather “attempting to comply in the way the law was interpreted” by the 2nd Circuit, according to Craig Whitney, of counsel at Morrison Foerster. But, of course, the Court ultimately ruled against Aereo. “They looked at Aereo and decided, for all intents and purposes, that it is a cable company. In the 1976 Copyright Act, it’s clear that when creating the Transmit Clause that cable companies must pay transmission fees.” And, since the Court decided that Aereo was no different from where cable companies were in 1976, it must pay fees as well.

NEXT PAGE: The impact on Aereo and other technology

So, what does the ruling mean for Aereo? That, of course, is “up to them, in terms of their business model,” says Whitney. “If they do go forward, they would need to pay license fees, which would put them in a situation similar to cable companies…. The Court did not say the technology was illegal, but the way it operates the service violates the Copyright Act. If they decide it’s not worth it, that is up to them. This ruling does not preclude that from happening.”

Goldstein, though, sees a far darker picture for Aereo. “It seems like they have waved the white flag, saying ‘we gave it a try and we lost…’ I can’t see them continuing. Their business model was undercutting other providers. Now they’d have to negotiate with broadcasters and they would have to factor those costs in.”

In deciding this case, many parties – including the White House – urged the Court to take care and ensure that it’s ruling was narrow enough so that it would not impinge on emerging technology. “It was a difficult task to make a decision with regard to this specific type of technology without having the decision bleed into other technology that was not before the Court,” explains Whitney. “They did an admirable job to toe that line.”

But Whitney and Goldstein agree that, no matter what, the decision will be scrutinized. “Clever lawyers can use it to argue that it supports or threatens new technology,” says Goldstein. “The impact remains to be seen. It might affect remote DVR services, but the only broad impact is perhaps a warning sign to other emerging technology that if they build their tech on a legal loophole they might get shut down.”

In their decision, the Court specifically stated that certain technologies are not copyright violations. For example, when an entity transmits a performance to individuals who have the right to possess that performance, it is not considered a transmission to the public. That way, if you have legally purchased content on a cloud storage service, like Dropbox, you can stream it to yourself without fear of copyright infringement.